Can an employer claim Georgia's child care tax credits for 2006 when its child care facility was fully built in 2006 but not licensed and operating until January 2007?

Plain-English summary

An employer formed a wholly owned LLC in early 2006 to run an on-site, employer-provided child care facility. It rented space in March 2006, finished construction in November 2006, held a parent information meeting, conducted tours, and had staff report for work in mid-December 2006. A Temporary Certificate of Occupancy issued December 7, 2006 and the final Certificate of Occupancy issued December 22, 2006 -- but the state licensing representative could not give final approval until she returned to her office in January. She approved the facility's licensure on January 5, 2007, and the center received its first clients on January 8, 2007.

The employer asked the Department to treat the facility as having met the licensing requirement in 2006 -- so it could claim, on its 2006 return, both the child care cost-of-operation credit (O.C.G.A. § 48-7-40.6(b)) and the qualified child care property credit (§ 48-7-40.6(d)) -- arguing the January license date was due to circumstances beyond its control.

The Department said no. Both credits depend on the facility being licensed (by the Department of Early Care and Learning under Title 20, or by the former Department of Human Resources under O.C.G.A. § 49-5-12) and operating. Because the facility was not licensed or operating in 2006, the taxpayer did not qualify for either credit for the tax year ending December 31, 2006.

What this means for you

Employers planning an on-site child care facility

The credit clock turns on the license and actual operation, not on how far along construction is. If your facility is built, staffed, and ready but not yet licensed by year end, you likely cannot claim the child care credits for that year. Plan the licensing timeline -- not just construction -- around the tax year in which you want the credit.

Accountants and tax professionals

For the qualified-child-care-property credit, the property must be "first placed in service" for use in a facility that is licensed; for the cost-of-operation credit, the costs must be incurred in operating a licensed facility. A "circumstances beyond our control" argument for a late license did not move the Department -- the statutory licensing condition is treated as a bright line. Note the ruling flags a wrinkle: the statute references licensing by the Department of Early Care and Learning (Title 20, Ch. 1A) while the regulation references the former Department of Human Resources (§ 49-5-12); under either, the facility was unlicensed in 2006.

Common questions

Q: Does finishing construction and getting a certificate of occupancy in December qualify the facility for that year's credit?
A: No. The Department looked to whether the facility was licensed and operating, not whether the building was complete. A December certificate of occupancy did not substitute for the license, which issued in January.

Q: We couldn't get the license in time because the licensing official was out -- does that excuse the deadline?
A: The Department did not accept that. It applied the licensing requirement as written, so the credits were denied for the earlier year even though the delay was attributed to circumstances beyond the taxpayer's control.

Q: Could the employer claim the credits in the later year instead?
A: This ruling only addressed eligibility for the 2006 tax year and denied it because the facility was not licensed or operating in 2006. Eligibility for a later year would depend on meeting all of the § 48-7-40.6 and Regulation 560-7-8-.38 requirements in that year.

Q: Can another employer rely on this ruling?
A: No. A Georgia letter ruling binds the Department only for the taxpayer and specific facts it was issued to, and has no precedential value for anyone else.

Citations and references

Statutes and regulations:

• O.C.G.A. § 48-7-40.6 -- employer child care tax credits: cost-of-operation credit (subsection (b)) and qualified child care property credit (subsection (d))
• O.C.G.A. § 48-7-40.6(a)(1), (a)(3), (a)(6) -- definitions of "cost of operation," "employer provided," and "qualified child care property"
• Revenue Regulation 560-7-8-.38 -- when the credits may be claimed and definitions of qualified child care property/facility
• O.C.G.A. § 49-5-12 -- licensing of child welfare agencies (former Department of Human Resources)
• O.C.G.A. § 49-5-3 -- definitions of day care center / family day care home
• Title 20, Chapter 1A -- licensing by the Department of Early Care and Learning

Source

• Landing page: Georgia Income Tax Letter Rulings
• Original PDF: LR IT-2007-01

Original ruling text

Date Issued:
April 3, 2007
Georgia Letter Ruling: LR IT-2007-01
Topic:
Childcare Tax Credit

This letter is in response to your letter, dated March 19, 2007, requesting a ruling that Taxpayer qualifies for tax
credits in O.C.G.A. § 48-7-40.6 in calendar year 2006 for purposes of claiming the credit on its 2006 tax return.
Facts:
Taxpayer formed a wholly owned limited liability company, LLC in early 2006 in order to operate facility, an
employer-provided child care facility. The facility was to operate in space rented at address. Taxpayer began
renting the facility in March 2006, contemporaneously with moving its Atlanta operations to address.
In order to comply with its goal of opening for business in late November or early December, Taxpayer fully
completed construction of the facility in November 2006. Also in November 2006, a well attended parent
information meeting was held, parent/caregiver tours were conducted, and commitment checks were received.
Subsequent to the informational meeting, in November 2006, the state of Georgia licensing representative was
contacted.
On December 7, 2006, a Temporary Certificate of Occupancy was issued. On December 11, 2006 the Verification
of Zoning Classification was issued and on December 14, 2006 the Fire Inspection was completed. Staff employees
reported for work on December 15, 2006. By December 18, 2006, the classrooms were configured, the staff was
trained, and all furniture and equipment had been received.
The Certificate of Occupancy was issued on December 22, 2006, but the licensing representative could not grant
final approval for the Center until she returned to her office during the first week of January, 2007. On January 5,
2007, the licensing representative visited the Center and approved all licensure requirements on that date. The
Center received its first clients on Monday, January 8, 2007.
Because of the above described facts, you have requested a ruling that Taxpayer “be deemed to have satisfied the
licensure requirement for its child care facility in calendar year 2006 for purposes of eligibility to claim on its 2006
tax return both the child care facility operating cost credit under Georgia Code Section 48-7-40.6(b) and the
qualified child care property credit under Georgia Code Section 48-7-40.6(d), notwithstanding that the license was
not formally granted until January 5, 2007 due to ‘circumstances beyond the control’ of the Taxpayer (i.e., the
temporary absence from work of the individual responsible for granting the license).”

Code Authority:
Georgia Code § 48-7-40.6 (b) provides that:
“A tax credit against the tax imposed under this article shall be granted to an employer who
provides or sponsors child care for employees. . .”
Georgia Code § 48-7-40.6 (d) provides that:
“In addition to the tax credit provided under subsection (b) of this Code section, a taxpayer shall be
allowed a credit against the tax imposed under this article for the taxable year in which the
taxpayer first places in service qualified child care property. . .”
Revenue Regulation 560-7-8-.38(2)(c) specifically states when the cost of operation tax credit may be
claimed:
“The cost of operation tax credit may be claimed in the same taxable year in which the cost of
operation is incurred. . .”

April 3, 2007
LR IT-2007-01
Childcare Tax Credit
Page 2 of 3

Revenue Regulation 560-7-8-.38 (3)(b) provides when the tax credit for cost of qualified child care property
may be claimed:
“The credit may be claimed in the same year in which the qualified child care property is acquired
or placed in service. . .”
Georgia Code § 48-7-40.6(a)(1) provides that:
“‘Cost of operation’ means reasonable direct operational costs incurred by an employer as a result
of providing employer provided or employer sponsored child care facilities…”
Georgia Code § 48-7-40.6(a)(3) provides that:
“‘Employer provided’ refers to child care offered on the premises of the employer.”
Georgia Code § 48-7-40.6 (a)(6) provides that:
“‘Qualified child care property’ means all real property and tangible personal property purchased
or acquired on or after July 1, 1999, or which property is first placed in service on or after July 1,
1999, for use exclusively in the construction, expansion, improvement, or operation of an
employer provided child care facility, but only if:
(A) The facility is licensed or commissioned by the Department of Early Care and Learning
pursuant to Chapter 1A of Title 20. . .”
Qualified Child Care Property is defined in Revenue Regulation 560-7-8-.38(1)(i):
“The term ‘qualified child care property’ means all real and tangible personal property purchased
or acquired on or after July 1, 1999, or which property is first placed in service on or after July 1,
1999, for use exclusively in the construction, expansion, improvement, or operation of an employer
provided child care facility. . . No such property shall be considered “qualified child care property”
unless:

1. The facility is licensed or commissioned by the Department of Human Resources pursuant to
   O.C.G.A. Section 49-5-12, or approved by any successor agency having regulatory authority over
   child care services. . .”
   Revenue Regulation 560-7-8-.38 (1)(h) provides that:
   “The term ‘qualified child care facility’ means any day care center, family day care home, or group
   day care home as defined under O.C.G.A. Section 49-5-3 which is licensed or commissioned as a
   “child welfare agency” by the Georgia Department of Human Resources pursuant to O.C.G.A.
   Section 49-5-12, or
   approved by any successor agency having regulatory authority over child care services. This
   definition includes state regulated after school programs.”
   Ruling:
   To qualify for the cost of operation tax credit in O.C.G.A. § 48-7-40.6 (b) and the tax credit for cost of qualified
   child care property in O.C.G.A. § 48-7-40.6 (d) all of their respective requirements in O.C.G.A. § 48-7-40.6 and
   Department of Revenue Regulation 560-7-8-.38 must be satisfied. The statute and the regulation both specify that
   cost of operation is the reasonable direct operational costs associated with providing employer provided or employer
   sponsored child care. Further, the statute provides that qualified child care property is property that is licensed by
   the Department of Early Care and Learning pursuant to Chapter 1A of Title 20. The regulation states that qualified
   child care property is property licensed by the Department of Human Resources pursuant to O.C.G.A. § 49-5-12, or
   approved by any successor agency having regulatory authority over child care services.

April 3, 2007
LR IT-2007-01
Childcare Tax Credit
Page 3 of 3

Taxpayer’s child care facility, facility, received its license on January 5, 2007. Taxpayer began providing child care
for their employees at facility in January of 2007. Facility was not licensed or operating in 2006, therefore,
Taxpayer does not qualify for the tax credit for qualified child care property or the cost of operation tax credit for tax
year 12/31/2006.
Based on facts stated herein, it is the opinion of this Department that Taxpayer does not qualify for the tax credits in
O.C.G.A. § 48-7-40.6, tax credits for employers providing child care, for tax year 12/31/06. This ruling is made
expressly relying upon the representations which have been made in writing and which are contained in this letter.
The opinions expressed in this ruling are based upon the information contained in your request and are limited to the
specific transactions and taxpayer in question. A ruling has no precedential value except to the person to whom the
ruling was issued and then only for the specific transaction addressed in the ruling. Should the circumstances
regarding this transaction change, or differ materially from those represented, then this ruling may become invalid.
In addition, please be advised that subsequent statutory or administrative rule changes or judicial interpretations of
the statutes and rules upon which this advice is based may subject similar future transactions to a different tax
treatment than those expressed in this response.